Foreign Inputs Research Articles

Capital Inflow and Technical Efficiency: A Comparative Analysis Between India and China

This article empirically investigates the impact of foreign direct investment (FDI) on the technical efficiency of manufacturing firms in India and China. We apply the first-stage, stochastic frontier analysis (SFA), to the translog production frontier. The first-stage method estimates simultaneously consider exogenous technical efficiency determinants and translog production function factors. We take foreign ownership and foreign inputs as exogenous determinants of technical efficiency with control variables and foreign technology input in the production frontier. Empirical results find that foreign technology shifts the production frontier by enhancing productivity for Chinese firms, not for Indian firms. Furthermore, domestic firms which use foreign inputs and foreign firms are more efficient. JEL Classification: F14, O31, O32

Economic upgrading of Central and Eastern European economies through global value chain participation and foreign direct investment

ABSTRACT This paper links global value chain (GVC) integration and operations of multinational enterprises (MNEs) in the context of host economies upgrading. Economic upgrading is referred to as higher exported value added that has been generated in the domestic economy as a result of foreign direct investment (FDI). Particular attention is paid to the impact of GVC on selected Central and Eastern European (CEE) economies. An econometric model is estimated using panel data of 44 sectors for four CEE economies over the period 1995–2018. A primary source of data is the latest edition of the TiVA (Trade in Value Added). The most important variable in explaining domestic contribution to GVC was the flow of foreign inputs. Backward linkages are crucial for building the GVC presence of the economies. The variables of interest – FDI stocks and flows – have in general a negative impact on the level of domestic content in analysed economies.

Input delays, Firm Dynamics, and Misallocation in Sub-Saharan Africa

We quantitatively analyze the macroeconomic consequences of border delays in Sub-Saharan Africa. Delays of imported intermediate inputs lower aggregate output because of factor misallocation and due to an inefficiently low number of firms that uses foreign inputs in production. Our model economy features heterogeneous firms that endogenously differ in the degree to which foreign inputs are used. The model is calibrated to micro-level data from Sub-Saharan Africa. Reducing border delays can increase aggregate output by up to 9.4%. The gains are mainly due to a reallocation of economic activity towards more productive firms.

Backshoring and regional manufacturing employment dynamics

ABSTRACT The theorised reorganisation of global value chains (GVCs) during crises periods and the European Union advocating for a relaunch of manufacturing activities in favour of jobs creation bring about the crucial question whether a relaunch of manufacturing employment via backshoring in Europe takes place with an intensity large enough to be captured by aggregate statistics. Defining backshoring as a process according to which production of a region uses again a greater share of domestic relative to foreign inputs, the paper operationalises the definition using suitable indicators at the NUTS-2 level and tests the relationship between backshoring and regional manufacturing employment dynamics.

Evaluation of some garden flowers as specialty cut flowers in Eskisehir province-Türkiye.

Specialty cut flowers are in demand, especially in the domestic market as they can be grown with low production costs without the need for specially equipped greenhouses and offer diversity in terms of form, texture, and colour. These products, which are widely cultivated in the USA, are not well known in Türkiye. One of the main problems of the Turkish cut flower sector is its dependence on foreign inputs and the lack of product diversity. Therefore, specialty cut flower production can be an alternative crop for Türkiye, which has climatic advantages. The cut flower potential of plants such as Zinnia elegans, Tagates erecta, Helianthus annuus, Gomphrena globosa, Centaurea cyanus, and Cleome spinosa that are commonly grown in gardens has been evaluated. After harvesting these flowers grown in an open field in June-October 2020, the stem length (cm), stem thickness (mm), flower length (cm), flower diameter (cm), flower weight (g), and vase life (days) were measured. As a result of the evaluations, considering the phenological findings such as flowering and harvesting period, Zinnia elegans, Tagates erecta, Helianthus annuus, Gomphrena globosa, and Centaurea cyanus were found to be suitable for Eskişehir climatic conditions due to their long flowering periods. On the other hand, if the stem length value, which is one of the most important parameters for cut flowers, is taken as a reference, the minimum stem length value of 30 cm and above is met by Zinnia elegans, Tagates erecta, Helianthus annuus, and Cleome spinosa while the vase life value of 6 days and above is met by Zinnia elegans, Tagates erecta, Helianthus annuus, Gomphrena globosa, and Cleome spinosa. However, Cleome spinosa was not found to be suitable for the region due to its low yield value and short flowering period, while Zinnia elegans, Helianthus annuus, Tagates erecta, and Gomphrena globosa were found to be plants that could be evaluated for the region. In addition, it is believed that the cultivation of specialty cut flowers, with the selection of suitable species, will be an alternative production in regions without climatic advantages.

The effect of trade policy uncertainty on R&D investment: evidence from Chinese listed firms

ABSTRACT This study investigates the impact of trade policy uncertainty on firm R&D investment in China, motivated by the recent trade friction between China and the US and the associated rise in trade policy uncertainty. Using textual analysis of annual reports of A-share listed firms, we construct firm-level measures of trade policy uncertainty and assess its effects on R&D investment. We find that higher trade policy uncertainty increases R&D investment. The effect is driven by firms’ desire to substitute away from threatened foreign inputs by strengthening their innovation. Given the increasingly challenging and complex external environment, this study holds significant implications for innovation policy-making and how firms respond to uncertainty.

Friend or Foe? Revealing R&D spillovers from FDI in Indonesia

The benefits of research and development (R&D) investment extend beyond the undertaking firms and may impact the wider economy through spillovers. This study examines the effect of Multinational Companies (MNCs)’ R&D intra-industrial spillovers on total factor productivity (TFP) using firm-level data from Indonesia between 2017 and 2019. To address the cross-sectional dependence, we employed a fixed-effects estimator with Driscoll and Kraay’s (1998) standard errors. We also incorporate a cost-based approach with a weighting matrix that integrates human resources into R&D activities to capture the R&D intra-industrial spillover from foreign companies. The findings indicate that intra-industrial R&D spillovers from MNCs negatively impact TFP, suggesting product-market rivalry in the domestic market. Foreign and domestic firms operating in a subsector that relies on similar technologies compete to enhance productivity, resulting in business theft. Increasing firms’ capability in human resource absorption, access to foreign inputs, firm size, and market concentration can improve TFP in manufacturing firms. This finding has policy implications for the proportions of R&D spending. The results also support the need to foster open innovation by creating an environment that encourages collaboration, skill development, and local innovation.

Duy trì ổn định kinh tế vĩ mô từ góc nhìn năng lực sản xuất quốc gia

The paper evaluates the improvement in productive capacities and its influence on the macroeconomic stability of Vietnam. Analyzing the export structure and product space from 2000 to 2020 reveals that Vietnam has accumulated new and advanced productive capacities over the past two decades. However, not only have these productive capacities lagged behind those of high-income countries but they also have been increasingly dependent on foreign inputs. So that national productive capacities should be critically restructured. These new productive capacities will decide which goods should be produced to make Vietnam become a part of global production network, the amount of consumed inputs and value added, job creation, and economic resilience against shocks. In addition, national productive capacities strategy should incorporate the global production trend in the next several decades, such as increasing localization rate and green products standards.

Growth gains from offshore outsourcing

We contribute theoretically and empirically to the policy debate on the domestic impact of offshore outsourcing. First, within a simple Ricardian structure, we put forward a growth model where sourcing of foreign inputs by itself, without any transplanted channels, leads to higher growth of domestic industries. Second, by combining country-sector level panel data on production with data on sector level use of imported inputs and input tariffs, we estimate the impact of foreign outsourcing on productivity and output growth. In line with our theoretical model, our analysis confirms that foreign sourcing of inputs exerts a positive effect on growth whereas imported final goods turn out to be insignificant. This has important policy ramifications: removal of trade barriers on intermediate inputs is necessary to boost growth.

Import competition and sustainable development of global value chains: Evidence from China

AbstractAs the largest developing country and the second largest importer, China provides meaningful research on import competition and the global value chain (GVC). This article uses theoretical models and empirical tests to explore whether and how import competition affects the sustainable development of Chinese firms' GVCs. Moreover, we utilize China's entry into the WTO as a quasi‐natural experiment for import competition to further test the robustness of our findings. Ultimately, we find that import competition reduces the sustainable development of GVCs by decreasing the quality of imported intermediate inputs, which inhibits technology spillover, and by increasing the substitution of foreign inputs for domestic materials. Heterogeneous analyses show that import competition negatively affects ordinary trade and mixed trade firms while having no significant impact on processing trade firms. Moreover, this negative effect is especially significant for firms in eastern and central regions.

Impacts of Tariff Rates on Input Source Choice: Evidence from Indonesia

This study empirically examines how a reduction in input tariffs changes firms' choices between domestic and foreign inputs. In order to do so, we employ Indonesian manufacturing surveys from 2002 to 2010 and compute the share of imported inputs among total inputs at the firm‐product level. With this dataset, we examine the effect of preferential tariffs for ASEAN countries—that is, ASEAN Free Trade Area (AFTA) tariffs. Our findings can be summarized as follows: First, we found that a reduction in AFTA tariffs in Indonesia encouraged plants to raise their share of foreign inputs. Second, such an effect of AFTA tariffs was observed only for indigenous plants, or those whose primary sales market is the domestic market. Third, we found that the more productive plants experienced a greater impact of AFTA tariffs on foreign inputs. In short, the reduction in AFTA tariffs encouraged input reallocation, at least in some specific firms in Indonesia.

Evaluating the Influence of Foreign Exchange Policy Regime on the Construction Sector in Nigeria

In developing economies, foreign exchange policy regime (FEPR) play a critical role in the viability of all sectors of the economy. In Nigeria, the economy is dependent on foreign inputs from contracting services, technology, materials, expatriates, etc. Therefore, this study investigated the impact of FEPR on the performance of the construction sector in Nigeria. To achieve this goal, time series data was extracted from United Nations Statistics Division (UNSD) on the construction sector, gross domestic product (GDP) and FEPR for 50 years spanning from 1970 to 2019. The study uses econometric approach including tests of stationarity and co-integration as well as the generalized method of moment (GMM) to model the relationships between the variables. The study reveals that the 1986 FEPR reform had significant and negative effect on the construction sector output in Nigeria. This implies that the performance of the construction sector is affected by the state of the economy and government policy. This study proves that the foreign exchange policy regime does not significantly influence the construction industry during the period of review. It also ascertained that the development of the construction sector depends more on previous construction outputs and only altered due to oil export shock. Hence, this study recommends that sustainable construction development strategies should be implemented to eliminate construction sector challenges and reduce the effect of foreign exchange rate volatility on the construction sector. Finally, monetary and fiscal policies that can engender sustainable growth and development of the construction sector should be implemented.

Firms amid conflict: Performance, production inputs, and market competition

We study the effect of conflict on firms’ economic performance and the underlying mechanisms. We develop a simple theoretical framework in which conflict reduces a firm’s output, induces input substitution, and increases firms’ exit. In our empirical analysis, we combine an original dataset of Libyan firms and geolocalized data on conflict events during the Second Libyan Civil War to show that, in line with the predictions of the model, conflict reduces a firm’s revenues and increases exit, relatively more for firms intensive in foreign inputs. We also document that, conditional on survival, the negative effect of conflict on revenues is non-linear, with its marginal effect decreasing as conflict intensity increases. Two mechanisms drive this result: the heterogeneous conflict-induced reduction in the availability of production inputs and the weaker market competition due to the conflict-induced decrease in the number of a firm’s competitors.

Exchange Rate and Manufacturing Sector Performance in Nigeria

This study examined the impact of exchange rates on the performance of the manufacturing sector in Nigeria between 1990 and 2020. Using canonical cointegrating regression (CCR) framework, the result obtained showed that exchange rate devaluation constrains manufacturing sector while exchange rate fluctuation hampers manufacturing output. The study indicated that price increase leads to decline in the manufacturing sector, the study recommends among other things the need to formulate policies that align with the exchange rate to the actual needs of the manufacturing sector. The study further suggests that change in exchange rate management strategy should be allowed to run a reasonable course of time. Jettisoning strategies at will and on frequent basis has implication for exchange rate and obvious consequence for a sector that depends on foreign inputs

FDI in services and firm innovation

This study explores how FDI in services impacts manufacturing firms’ innovation, using China's FDI access relaxation in services as an exogenous shock. Our findings indicate that FDI in services significantly reduces firms’ innovation. Firms with greater openness to FDI in services have significantly lower numbers of patent applications and citations. FDI in services leads to an increase in foreign input imports but a decrease in innovation investment, with more pronounced effects on firms relying more on foreign inputs. We suggest that FDI in services encourages the use of foreign inputs by reducing their relative costs, thereby crowding out innovation. Human capital, Internet, and subsidy can mitigate the negative effects of FDI in services on innovation.

Decomposition analysis of global value chains: Uncovering vulnerable spots in a selected economy (the example of Czechia)

Recent global turmoil has added to the importance of food security issues and the sustainability of production processes worldwide. This study aims to uncover the degree of domestic industries' dependence on the international fragmentation of production processes and identify the countries of origin of those producers who have managed to displace domestic producers in corresponding Global Value Chains. Using data retrieved from the World Input-Output Database, we studied Czechia's example via demarcation of domestic value-added (DVA) shares from foreign ones in final domestic products. A declining trend in DVA signalises an ever-increasing dependence on foreign inputs. The conducted analysis allowed a VA-structure (and its dynamics for a sequence of years) to be clearly identified for final domestic products among 30 industries that virtually cover the entire economy. The most alarming finding is the marked reduction of DVA in food manufacturing, which points to a weakening of Czech food security. Realising all the connections within GVCs may help to identify vulnerable spots in domestic production processes and prepare adequate response mechanisms in potential situations of possible interruptions from the foreign side. The detailed explanation of the decomposition technique provided in the study can be used in similar analyses of other economies to reveal noteworthy trends and prepare response measures.

Defense industry business performance model in developing countries

The defense industry is vital to supporting a country’s defense, especially in the modern era. While many emerging and developing countries are capable of producing military goods and services domestically, they remain dependent on foreign inputs to varying degrees. Yet, several studies have examined factors that can affect the self-reliance of the defense industries in developing countries. Therefore, the present study aims to examine factors that can explain business performance variation of defense industries in developing countries. It investigates further the business model innovation mediation for the first two factors of business performance. Data have been collected from 70 defense industrial companies in Indonesia. The Partial Least Squares-Structural Equation Modeling method is used to analyze the impact of high-performance work systems, technological innovation, and business model innovation on the business performance of industrial companies. The results show a significant effect of implementing High-Performance Work Systems and Technological Innovation through Business Model Innovation on Business Performance (accounted for R2 = 0.67). The research findings are expected to encourage defense industries in developing countries to focus on implementing human resource practices and adopting new or improved technologies and research results at all levels of management following business model adjustments.

Russia’s Not-So-Secure Food Security

ABSTRACT The dominant approach to food security emphasizes food production and supply. This approach is too narrow. In reality, inputs are as important as actual food output. Without critical inputs, food production is constrained. Russia’s invasion of Ukraine illustrates the narrowness of the food production approach to food security. Russia is experiencing “input insecurity” which was revealed after its invasion of Ukraine. Specifically, the article explores Russia’s dependence on foreign farm machinery, seeds, and pedigree livestock. Russia’s input insecurity may not be long-term, but even so the dependence on foreign inputs means that Russia’s food security is not as secure as previously believed.

Threshold of currency devaluation and oil price movements that stimulates industrial production

Even though oil prices are not subject to manipulations by individual countries, instability in the same generates shocks that other variables respond to, yet amid these shocks, more units of local currencies in developing countries are needed to acquire foreign inputs for production. Fluctuating oil prices consequently imply that high prices would increase the cost of production and ultimately reduce the purchasing power of industries. This study ascertains threshold effects of exchange rate devaluation and changes in oil prices on the industrial output of thirty developing countries using threshold and nonlinear autoregressive distributed lag (NARDL) regressions. Results revealed percentage rise above the devaluation threshold caused a fall in production by 4.36 percent. Oil prices within this devaluation region negatively affected output. Below and within the devaluation threshold of 0.692, the relationship patterns switch with oil price variability attracting positive and significant effects, while devaluation impacted industrial output positively with a substantial magnitude of 0.334. A higher devaluation was met with lower output in the industrial sector. In this higher region, increased oil prices weaken devaluation effects by 91.882. When a currency falls more than it is obtainable in the threshold (6.9 percent), oil prices cut output by a larger magnitude than it stimulated positively when the devaluation rate did not surpass the threshold value.

Exchange Rate Appreciations and the Distribution of Productivity: Is Importing Inputs Sustainable for Emerging Countries?

A static model is used to investigate how the exchange rate movement affect the distribution of productivity within an industry. Quantile regression is then used to empirically test the effects of RMB exchange rate appreciation on the distribution of labor productivity within industries. Based on China’s manufacturing micro-enterprise survey data from 1998 to 2007, we characterize how exchange rate changes affect the distribution of productivity through three mechanisms. We find that the exchange rate appreciation increases the dispersion of the productivity distribution and decrease the efficiency of resource allocation and aggregate productivity. The distribution of the import intensity may be the main cause for the increase in the productivity dispersion and the deterioration of the industrial resource allocation efficiency, which implies that foreign inputs improve the mean productivity of firms but decrease the resource allocation efficiency. China should tradeoff the gain in productivity and loss in allocation efficiency when it aims to implement a more elastic RMB exchange rate regime.